ASSET PROTECTION:
IBC Rules: Revisiting IBCs.
IBCs are becoming fashionable again, particularly, among
super savvy investors, as M Woods discovers.
Ultra-low interest rates have played a massive role in
maximising property investors’ returns on cash-flow: an advantage that
investors in stocks and shares have always enormously envied. However, with
governments in the western world reluctant to back down from rolling out new austerity
measures, maximising returns on capital and price appreciation still remains a
challenge.
At one time, the tactic of setting up an offshore vehicle
to buy and sell investment real estate was a clever move, as investors could
sell on their investment property asset by simply transferring the offshore
ownership vehicle or shares in the offshore entity to the buyer and walk away
with a tax free capital gain. This scenario is not so easy nowadays and with
governments eager to reduce their budget deficits, the advantages once accrued
under offshoring have now vanished.
Setting up property investment vehicles in offshore
jurisdictions is no longer seen as a tax shelter. Moreover, the protection of
anonymity once offered by an offshore trust or company no longer exists.
Trustees and registry agents of offshore companies now have to come forth with
their client details or risk getting blacklisted. The onus is also on onshore
corporate institutions (in particular banks) to report to the authorities remittance
of money, assets or proceeds from the sale of assets. In this way, it becomes
even more difficult to negate one’s tax liability. Chances are, it is better to
pay some than risk a fine or prison sentence by avoiding paying any taxes.
THE ALTERNATIVE:
Well, if you do not want to give up your British
citizenship, or become an expat there may be another hassle-free solution. Yes,
being domicile in a low tax or zero tax country does enable you to maximise
your returns from investing in UK real estate, but it means living in another
country for the most part of the year. Readers may be familiar with a number of
well-known personalities who have given up their UK passport in return for a
European passport and moved to countries like Luxemburg or Switzerland to enjoy
favourable tax treatment.
But, setting up an IBC (International Business
Corporation) can save you a lot of hassle and is a smart move for reducing
capital cost. What’s more, it is perfectly legitimate from top to bottom. IBCs
are international companies set up and legitimised by various statutory laws
and international treaties which afford them a number of special privileges,
such as, lengthy tax exemption, avoidance of double taxation and
re-domiciliation.
In recent years, IBCs have become very popular amongst a
certain calibre of investors and, by far, outweigh the merits of an offshore
company. So, when it comes to asset protection, cross border investment and
double tax mitigation, it is clear why IBCs rule the international business
scene.
KEY POINTS TO CONSIDER WHEN SETTING UP AN IBC:
In setting up an IBC, there are a
number of requirements a property investor will need to satisfy and it is best
to speak with your tax advisor first. Nevertheless, owning an IBC is a great
way for reaping the rewards of your hardworking investment. It should be noted
that a key requirement of an IBC is that it has to be carrying on some form of
real business activity in the country of domicility and cannot be a shell
company, as in the case with offshore companies.
Another key point to consider is
the tax treaty agreement between the countries where assets are held and the
IBC is incorporated. In cases where an international tax treaty is in placed
between the two countries, the tax treat will prohibit double taxation. In this
way, owners of IBCs will be taxed in the jurisdiction where the IBC is
incorporated and not where the assets are help. In most cases, the location
where the IBC is set up, the tax rate is usually much lower than the country
where assets are held and the investor will benefit from paying the lower tax.
For more info, check out my book: Surviving Amid The Economic Rubble or The Reallionaire Magazine 2013 August Issue.
